Spotify hopes going public will cement streaming as music's future

Summary/Commentary:

The world may love the services they provide, but the new generation of tech companies haven’t found much love on Wall Street recently. Spotify, the leading music streaming service, is hoping to change that with a share sale could lead another round of “unicorns” to try their luck on the US stock markets.

Founded 11 years ago in Sweden by Daniel Ek, 34, Spotify currently has more than 100m monthly active users, of which 50m are paying subscribers. A successful debut for Spotify, valued at least $8.5bn, will officially crown streaming as the future of the music industry.

The company’s closest rival, Apple Music, counts 20 million paying users; Tidal, fronted by the rap superstar Jay Z, a little over one million. Amazon and Google are also in the game, with Facebook a likely entrant.

Ek, a serial entrepreneur who started his first company at age 14, owns a stake in Spotify valued at $1.8bn. But while he will leave this share sale a rich man, streaming will probably never make the sort of money for the music industry that CDs and vinyl did. Even so, after more than 15 years of disruption that kicked off with industry revenues eviscerated by illegal peer-to-peer file-sharing, the music business is currently celebrating its second straight year of growth.

In 2016, streaming revenue increased 60%, while the overall global music industry grew 5.9% – the fastest rate of growth since 1997. According to a global music report issued by the industry group IFPI, music revenues hit $15.7bn in 2016, up from $14.8bn in 2015. Fifty per cent of that came from digital sales.

A Goldman Sachs research note, Music in the Air, projects that streaming will help revenues double to $104bn by 2030.

The industry’s begrudging acceptance of technology has proved its salvation.

“This is the triumphant return of innovation,” says Les Borsai, music-tech entrepreneur behind the business-facing music platform SongLily. Instead of fighting consumer preferences, the labels “have come around to realizing that consumer demand for innovation drives the business”.

“It’s not so long since we had to walk into Virgin Records to buy the physical product. Back then, we thought people would hate losing that experience. Download kills retail, but that becomes archaic. So we go to the streaming model that gives instant gratification, which is now the model for everything.”